Price Action Vs. Central Bank Speak Since Bernanke Taper Talk

Includes: EWJ, GXC, SPY, VGK
by: Richard Shaw

Benjamin Graham once said that markets are voting machines in the short term and weighing machines in the long term - sentiment vs. fundamentals.

These days the primary driver of sentiment tends to be central bank statements and actions - with mere statements having huge impact.

If you have doubts about the market impact of central-bank-speak, just take a gander at this calendar of central bank statements compared to market price action:

  • 05/22 Federal Reserve president Ben Bernanke said that a tapering of quantitative easing could begin later this year if conditions warrant
  • 06/18 European Central Bank president Mario Draghi said he had an open mind to doing what was necessary
  • 06/19 Bank of Japan president Haruhiko Kuroda said they are taking steps and felt things would work out
  • 06/20 Peoples Bank of China governor Zhou Xiaochuan added liquidity to their banking system to relieve a liquidity crunch
  • 06/21 St. Louis Fed president James Bullard said QE could actually be increased if inflation slows
  • 07/10 Federal Reserve president Ben Bernanke said the economy needs the Fed's easy-money policy "for the foreseeable future."

Now let's look at price movements on the day after each of those statements/actions:

US Stocks

European Stocks

Japanese Stocks

Chinese Stocks

Bernanke frightened the markets, and other central banks stepped in with voice and cash to stem the decline, followed by a dovish "clarification" by Bernanke yesterday.

It appears that all is well for now, at least as far as central bank driven sentiment is concerned.

Securities Mentioned: S&P 500 (NYSEARCA:SPY), Europe (NYSEARCA:VGK), Japan (NYSEARCA:EWJ), China (NYSEARCA:GXC).

Disclosure: QVM has positions in SPY and VGK as of the creation date of this article (July 11, 2013). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, and are not compensated by Seeking Alpha in any way relating to this article.

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